MT. JULIET, Tenn. (DTN) -- Farm incomes are expected to drop sharply from 2022's record highs, but USDA's November estimate is about $10 billion higher than it was in early September.

USDA's Economic Research Service expects net farm income to decline $31.8 billion, or 17%, from 2022 to $151.1 billion. In September, USDA estimated net farm income at $141.3 billion.

The report reflects lower commodity prices for corn, soybeans and many other commodities, as well as higher expenses, particularly interest. As a result, USDA sees some erosion of working capital and higher debt utilization.

USDA releases two estimates: net farm income and net cash income. Net cash income measures only cash receipts and expenses. It includes net cash income as well as changes in inventories, capital replacement, rent, expenses related to the operator's dwelling and more.

Net cash income surpassed $200 billion in 2022, but it is expected to decline 21% to $157.9 billion. Six of the nine regions USDA uses in its analysis are expected to see average cash farm income fall in 2023 relative to the previous year.

"When grouped by commodity specialization, all farm businesses specializations except cattle/calves, wheat and specialty crops are forecast to see lower average net cash income in 2023. Farms specializing in dairy are expected to see the largest decline relative to 2022," the report stated.

Total cash receipts from the sale of ag products are forecast to decline $25.5 billion from last year's record high to $509.6 billion in 2023. Crop receipts are expected to decline 4.4% from 2022, led by lower corn and soybean prices.

USDA also noted that lower government payments from supplemental and ad-hoc disaster assistance and higher production expenses contribute to the lower farm income forecast. USDA includes operator dwellings in its forecast of expenses.

"Interest expenses and livestock/poultry purchases are expected to see the largest increases in 2023 while spending on fertilizer/lime/soil conditioners, fuels/oils, and feed is expected to decline relative to 2022," the report stated. You can read more on cost of production estimates here: https://www.dtnpf.com/….

HIGHLIGHTS

-- Equity: Farm sector equity is expected to increase by nearly 7% to $3.57 trillion. Assets values grew in 2023, with USDA factoring in a 6.6% increase to $4.09 trillion. Debt levels are forecast to increase 5% to $520.7 billion. Working capital is forecast to fall 5%.

-- Government payments: USDA doesn't include insurance indemnities in this calculation, which primarily reflects programs authorized by the farm bill as well as pandemic-related payments. After reaching a record high of $45.6 billion in 2020, direct government payments are forecast at $12.1 billion. Supplemental and ad-hoc disaster aid amounts to $6.8 billion; conservation payments, $3.7 billion; dairy margin coverage program, $1.3 billion; and Agriculture Risk Coverage and Price Loss Coverage program payments of $343.7 million.

-- Interest expenses: USDA sees interest expenses, which includes operator dwellings, to increase $10.3 billion from 2022. USDA expects farmers to pay $34.4 billion of interest in 2023. "This reflects expectations that both total debt levels and interest rates will rise in 2023. While in nominal terms this level is forecast to be the highest to date, in inflation-adjusted dollars, interest expenses were at least 50% higher in early 1980s," the report stated.

You can find all of the details on USDA's report here: https://www.ers.usda.gov/….

Katie Dehlinger can be reached at katie.dehlinger@dtn.com.

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